In 2004, the American Society on Aging sponsored a study to evaluate the financial knowledge of Americans age 50+ which included a survey of three simple yes/no questions that assessed the knowledge of the respondents on concepts such as inflation, risk diversification and interest rates.* At that time only one third of respondents could answer all three questions correctly. Since 2009, broader studies have been made within the wider population and the results were similarly dismal, but there was a clear correlation between age and a failure to understand some basic financial concepts that make up financial literacy. This is especially worrisome given that money and debt management issues are most consequential to this most vulnerable population.
This may seem an overwhelming topic to tackle, certainly for a senior at such a late stage in life, but also for their families. And while getting sound financial advice is one of the first things most money professionals recommend, that can be easier said than done. Many older adults rely on the advice of relatives, friends or neighbors, which is a strategy that as many as 70 percent of fraud victims report having used. In the end, becoming as informed as possible yourself, and then considering getting further educated by an accredited and referred professional Financial Advisor are the best first steps to improve one’s financial literacy. One online resource for understanding some of the basics is ConsumerCredit.com (http:/ /www.consumercredit.com/financial-education/55plus/resources/. This site offers useful tools designed for the 50+ population
To get the ball rolling, here are several topics which seniors and their families may wish to consider when evaluating their financial health.
• Know where your money’s going. Based on a 2014 survey by the National Foundation for Credit Counseling, over 60% of Americans don’t have a budget. This is the first place to start in developing financial literacy. You can’t make informed choices about your money if you don’t know where it is going.
• Address your debt. Now that you know where your money is going, if you carry significant debt, it’s time to develop a strategy to start eliminating it. For most seniors on a fixed budget, this means identifying expenses in your budget that you can trim, and developing strategies to change your spending habits.
• Check your credit report. Because these days your credit report can impact not just your ability to get a loan, but to rent an apartment or land a job, it is critical that you check your credit report at least once a year and understand the factors that effect it. If your score is low, there are many agencies available to help you start improving it.
• Understand your retirement portfolio. For those seniors with retirement portfolios, it is important to understand your risk and regularly evaluate your investment choices. While the safety of bonds has always been attractive to seniors, a perfect storm may be upon the bond market in the form of anticipated increases in interest rates, tax cuts and a ballooning national debt which will all impact the value of bonds. If your portfolio heavily favors bonds, it may be time to consider a more diversified financial plan, and evaluate whether your total living expenses could ride out a drop in value.
• Be prepared. We’ve all heard the rule— you should have three to six months of expenses on hand for an emergency or change in life circumstances. If you don’t think you can get there, start somewhere. Target at least a thousand dollars to set aside so if you have an accident or car trouble you have something to fall back on.
* For more information on this study, and a more in-depth discussion on the topic of financial literacy, go to http:// www.asaging.org/ blog/financial-literacy-and-financial-decision-making-older-adults.
—By Caren Parnes
Contributor for The Senior’s Choice